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To: Return to Sender who wrote (8966)	3/12/2003 11:39:37 PM
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INDEX INTELLIGENCE: The Trader’s Index Spikes Higher By Frederic Ruffy, Optionetics.com 3/12/2003 1:30:00 PM The Traders Index ($TRIN) jumped to a five-year high earlier this week. This indicator is generally used to gauge for technical oversold/overbought conditions in the market. If TRIN produces low readings, it is often a sign that stocks are overbought. When it spikes higher, TRIN suggests that the market is becoming oversold. On Monday, the indicator produced its highest reading since October 27, 1997. Consequently, the indicator now suggests that the market is deeply oversold and overdue for a bounce. What do we mean by “overbought” and “oversold” anyway? In technical parlance, an overbought market is one that has risen too fast and the pace is simply not sustainable. So, if a stock or market is overbought, the technician will expect the rally to run out of steam and for the market to move lower. Oversold conditions occur when prices have been pushed down too far. If a stock or marker is oversold, investors have been selling it aggressively and the prices have fallen sharply. When the selling reaches an extreme, the move cannot last and the trader will expect a bounce back in stock or market. Stochastics, Relative Strength Index, and Bollinger Bands are all popular technical tools used to identify overbought and oversold stocks or markets. The Trader’s Index is also a tool for measuring overbought and oversold market conditions. It provides a look at what is happening with all the stocks trading on the New York Stock Exchange [NYSE]. To find TRIN at any given moment, type in $TRIN in the quote box on the Optionetics.com home page (or simply click the hyperlink). Computing the Trader’s Index manually requires four pieces of information from New York Stock Exchange trading—up volume, down volume, advancing issues, and declining issues. The Trader’s Index equals the number of stocks that are increasing or decreasing in price (i.e. advancing and declining issues) along with the volume going into the stocks that are increasing or decreasing in prices (up/down volume). The formula is: TRIN = Volume declining/Number declining Volume Advancing/Number advancing For instance, one can compute TRIN using the closing numbers from New York Stock Exchange trading on Monday, March 10, 2003—advancing issues (816), declining issues (2,474), up volume (64,846,000), and down volume (1,140,119,000). Plug the numbers into the formula: TRIN = 1,140,119/2,474= 5.79 64,846/816 Basically, traders use TRIN to study the volume associated with trading on the New York Stock Exchange. When there is heavy volume going into declining issues, it is a sign of intense selling pressure and TRIN will rise. On the other hand, when TRIN falls, it indicates aggressive buying into advancing issues and strong buying demand. On Monday, selling pressure was intense and down volume outpaced up volume by a 17-to-1 margin. This ratio of up-to-down volume is rare. It only occurs during periods of extreme market fear and panic. Recall that the Dow plunged 170 point on that day. The type of selling witnessed on Monday is so rare that the Trader’s Index jumped to its highest levels in more than five years. Even panic sell-offs in the October 1998, September 2001, and July 2002 failed to produce TRIN readings of 5.00+. One has to go back all the way to October 27, 1997 to see a higher reading from the Trader’s Index. On that day, the ratio of up-to-down volume was also 17-to-1 negative and the industrial average plunged more than 550 points or 7.1%. From that point forward, however, the Dow recovered and staged a one-month 14% advance. It had become deeply oversold. optionetics.com